Bank of America’s repayment puts pressure on rivals
NEW YORK - Bank of America’s surprise move to pay back $45 billion in federal bailout money ratchets up pressure on rivals
That’s because many banks, including Citi and Wells Fargo, still face big losses on loans as people fall behind on bills.
Moreover, the government may be reluctant to let them repay until they’re confident that no further assistance will be needed.
If the economy were to seriously weaken again, the government could be forced to inject more money into big banks.
In doing so, Bank of America would join
Bank of America in particular has been aided by profit from its wealth management business, which includes the bank’s Merrill Lynch division.
The TARP repayment helps the Charlotte, N.C., bank’s efforts to recruit a successor to chief executive Ken Lewis, who said he planned to retire Dec. 31.
But it also widens the competitive gap between banks that have repaid TARP funds and those that haven’t, said Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution.
“It puts more pressure on Citigroup and Wells to pay it back when they can - which is good,’’ Elliott said. “We want them to be under pressure to act.’’
Like other big banks, Citigroup and Wells Fargo & Co. have been beset by losses on loans from mortgages to credit cards as a growing number of consumers struggle to pay off debt.
Citigroup reported $8 billion in loan losses in the third quarter compared with $5.1 billion for Wells Fargo.
Citigroup has received $45 billion in federal aid and guarantees to protect against losses on more than $300 billion in risky assets. In return, the government got a 34 percent ownership stake in the banking giant.
Wells Fargo has received $25 billion in aid. Neither bank has given a timetable for repaying taxpayers.
Wells Fargo “will work closely with our regulators to determine the appropriate time to repay the government’s investment . . . while maintaining strong capital levels,’’ spokeswoman Julia Tunis Bernard said.
Appearing yesterday on Capitol Hill, Federal Reserve Chairman Ben Bernanke said regulators decided it was “safe and reasonable and appropriate’’ for Bank of America to repay its bailout funds.
The bank has paid $2.54 billion to the government so far in dividends on the TARP money.